Even on big down days in the markets, there are some big gainers. That scenario certainly applies to Kohl’s Corporation (NYSE:KSS), which is the PreMarket Prep Stock of the Day.
Kohl's Kept Under The Radar: On many occasions before a potentially big deal is announced, the preliminary price action may indicate some investors had a “heads up” that a deal may be in the works.
That certainly was not the case based on the price action in Kohl’s to end last week. Along with the broad market, the issue tumbled on Thursday and Friday.
In fact, Kohl’s took more of a beating, swooning $4.99 or nearly 10% from Wednesday’s to Friday’s closing prices ($51.83 to $46.84.)
Let’s Make A Deal: After the conclusion of after-hours trading on Friday, it was reported that Kohl's — one of the largest retailers in the U.S. — was the recipient of a $9-billion bid from activist hedge fund Starboard Value. That equates to approximately $64 per share, which is a huge 37% premium to Friday’s closing price for the underperforming issue.
Adding more fuel to the speculative fire were unconfirmed rumors over the weekend that Sycamore Captial and Oak Street Capital were also considering a bid for the company for an undisclosed amount.
PreMarket Prep's Take: Co-host Dennis Dick made it very clear Monday what he would do if he owned the issue in his long-term account.
"I would sell it right now," Dick said. "This is a trading gift, especially not knowing whether or not the deal is ever going to come to fruition."
He emphasized that the company’s low price/earnings ratio is what it makes so attractive to potential suitors.
The author of this article cautioned investors that buying the issue at its current price ($63) banking on a higher bidder coming in was very speculative at best. From a technical standpoint, the issue was reaching major resistance at the high following its pandemic low at $64.80.
Kohl's Price Action: As of 2:15 PM EST, no other bidder has emerged and the rally has stalled just ahead of the proposed takeout price ($63.80 vs.$64). In fact, there is now some skepticisim that it's a done deal, as investors are not sticking around to find out.
The retreat from the high found support at $60.82 and the sotck has now rebounded back into the mid-$61 handle.
The full discussion on the issue from Monday’s show can be found here:
Photo courtesy of Kohl's.
